Tiffany has suffered criticism for a lack of significant sales growth, especially during the holiday season, which is supposed to be its most lucrative quarter.

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Jewelry retailers like Tiffany & Co. (NYSE:TIF) make the most money during the Christmas season, but they also rake in a lot of money each Valentine's Day, to the tune of $4.4 billion per year, according to projections from the National Retail Federation. Tiffany & Co. is taking advantage of the holiday by including a "Drop a Hint" button that allows your special someone to receive an email that you're interested in a certain item. It's hardly a hint -- more like a not-so-subtle ribbing -- but Tiffany hopes it will get people spending on the most romantic, if not one of the most expensive, days of the year.

That is Tiffany's biggest edge over competitors: It's still the brand that best represents sweeping romantic gestures, as its ads of regal women walking with dapper men on cobblestone streets suggest. Not many jewelry brands instantly evoke romance, quality, and elegance the way Tiffany does, even though they are also luxury brands. Strangely enough, a movie about an ill-bred escort further burned this idea into the American psyche, and now a woman is expected to squeal in delight at the sight of a robin's egg blue box.

But Tiffany has suffered criticism for a lack of significant sales growth, especially during the holiday season, which is supposed to be their most lucrative quarter. The US division, which makes up half of the retailer's revenue, performed the worst. Total revenue rose only 4% in November and December. Signet Jewelers Ltd. (NYSE:SIG), which owns Jared's and Kay Jewelers, reported that sales increased 7% during the same period. Tiffany may have to overcome the challenges of brand dilution, lack of innovation, or inability to adjust to its current competitors, analysts and consultants say.

Global Weakness

For over 10 years, Tiffany planned to boost its net sales by expanding stores in the United States and overseas. From 2001 to 2011, Tiffany grew its number of stores from 126 to 247. During the same period, Tiffany grew its Asia stores (excluding Japan) from 20 to 58, and its European stores tripled. Tiffany could not foresee the 2008 financial meltdown, however, or the international economic pain it would cause. A slowdown in China, the tsunami in Japan, and the European debt crisis are threatening the international reach that was previously an advantage for the company.

A 2012 JPMorgan Chase & Co. analyst report, "Specialty retail: Taking a luxury mulligan," speculated that international economic weakness, especially in Asia excluding Japan, indicates that Tiffany will face further stress down the road, which could lead to a downgrade of Neutral. While comps within the segment continue to outpace the total company, the rate of change has clearly decelerated meaningfully over the past 12 months," the report read. "A broad based geographical slowdown should lead to a downwardly revised outlook, which makes the stock difficult to predict in the near-term."

Failed Partnership With Swatch

An August 2012 report by Koncept Analytics, a global marketing research firm, highlighted the importance of the growing watch segment. Watch sales increased 10.6% in February 2012, and the watch segment. was cited among the fastest growing jewelry categories, along with bridal merchandise and fashion jewelry. Unlike engagement and other diamond jewelry categories, which have lost market share from 8% to 7% and 41.8% to 35.7% respecitvely, watches held their market share of 13.27% from 2008 to 2010.

As demand for watches continues to grow, especially men's watches, jewelers that used to focus almost entirely on engagement rings and other women's jewelry are adapting to include more choices for men.

Signet Jewelers released a 2012 report that showed watches accounted for 31% of the jeweler's annual sales. Compagnie Financiere Richemont SA (VTX:CFR), which owns Cartier, Van Cleef & Arpels, and Piaget, among others, reported watches as 26% of their sales in its 2012 annual report.

Tiffany has been behind the trend and attempted to catch up by partnering with Swatch Group (VTX:UHR) in 2007. That planned 20-year partnership ended last year, however, when Swatch Group sued Tiffany for $4 billion to seek compensation for losses it says were incurred due to the partnership. Tiffany countersued and the two parties went through arbitration in October of last year. Tiffany now plans to rebuild its watch segment and grow that part of the business to 8% or 9% of its sales in the next year, CEO Michael Kowalski said during a conference. It is unclear, however, if Tiffany can hit that target, without any inkling of a new partnership with another watch manufacturer or the kind of global marketing strategy it employs to sell engagement rings.

Brand Dilution

Tiffany has also faced brand dilution, which consultants have warned the company about in the past. Tiffany's sterling silver pieces are priced lower, especially its popular key necklaces, attracting younger and more middle-class customers. In 2008, Harkness Consulting advised Tiffany to name stores with lower-end silver items "Tiffany Silver" or "Tiffany" to signal to higher-end Tiffany customers that this was a lower-end version of the store, protecting its luxury image. The report also notes that Tiffany is stuck between a rock and a hard place; many of its items are too expensive for the middle class consumer and too commercial for the very affluent consumer.

Even so, some analysts think Tiffany & Co. deserves a break. HSBC Securities upped its rating on Tiffany to Overweight last month and Seeking Alpha contributor Matthew Frankel argued in December that the company is still continuing to grow, as it reported 11% same-store sales growth in 2011, and 13% same-store sales growth in 2012, as well as strong sales in Asia where growth matters more in the long term.